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Five Years After Peak, Are Investors Paranoid or Pragmatic About Stocks?

It is arguably one of the best known songs and lyrical lines linked with R&B legend Aretha Franklin, and she only wanted a little bit of it. I'm talking about "R-E-S-P-E-C-T, find out what it means to me" --a riff not only befitting the Queen of Soul, but also an important current theme for investors who are easing into the fourth quarter in a market that's up 15% year-to-date.

"We think there are plenty of risk factors that the market, and investors in general, may not be appropriately respecting," says John Lewis, founder and chief investment officer at New Albany Capital Partners. "It's not bad time to take a little cash off the table," he adds in the attached video clip, in citing a number of risk factors that are troubling at best, and ominous at worst.

One such area of concern that Lewis is watching is a series of divergences --a pattern of split opinions that is much wider than normal, and therefore, prone to not only make for some big winners and losers, but to also boost volatility along the way.

For example, on the very day when the IMF lowered its global growth forecast for the second time in five months and flagged an "alarmingly high risk" of a sharper economic downturn, Lewis points out that the outlooks from Wall Street and the Fed are dangerously divergent too, in as much as they both can't be right.

''Of the many things that are on the risk radar, the divergence between the street and the Fed is certainly something we need to keep an eye on," he says. And whether it's GDP, inflation targets or earnings expectations he's tracking, the dueling forecasts are miles apart.

Case in point; Lewis is politely puzzled by the Fed's rosy view of inflation and growth compared to that of the Wall Street pundits, and he also questions the potential fallout that could come from an unusually wide 30% range in year-end price targets for the S&P 500, from as a low as 1167 to as high as 1525.

"The scary part with that is that earnings estimates aren't that far off. There's only about a 6% variance between the highest earnings expectation and the lowest," he says, meaning somebody is likely to get smoked while the other side will be in for a little respect, if you will.

But the fight doesn't end there. In fact, with the election and fiscal cliff overhanging the markets, as well as the unpredictability of the upcoming earnings forecast season, Lewis again sees this as a chance to raise cash, despite the old "don't fight the Fed" adage.

"Not to sound conspiratorial, but it's an awful convenient forecast that we will have benign inflation until the next presidential election and GDP in the mid-3's, after we just came off of a 1.3% print last quarter and everybody in the world is ratcheting down forecasts," he says. "It's a very, very convenient forecast they (the Fed) have at this time."

While much will be made of the anniversary of the all-time highs set by the S&P 500 and the Dow 5 years ago, Lewis downplays that fact as being little more than a ''mental benchmark'' that was attained under conditions that were entirely different - or divergent - than what we have now.

"Where we were five years ago doesn't factor into our analysis at all," he says dryly, adding that the real work - and money - will be made in determining earnings growth rates and valuations for 2013 and 2014, and having some cash built up to take advantage of opportunities that crop up.